Tag: H1-B

How TCS Lawsuit on Workplace Discrimination Impacts Service Providers in 2019 | Sherpas in Blue Shirts

The jury trial in a lawsuit against TCS, filed by US workers alleging discrimination against US-born workers, opened this week. The suit claims TCS shows a preference for hiring Indian workers through H-1B visas when hiring locally in the US, even when trained US citizens were available. I believe this lawsuit is hugely important for the entire service provider industry, not just TCS, but not because of a possible settlement or the amount of damages. In fact, I believe whether TCS wins or loses the lawsuit is almost irrelevant. There’s a bigger implication: the services firms are in a no-win situation that they must now address. Let’s look at why this case is so significant.

Today’s US Workplace Environment

First, let me point out that TCS is not the only service provider firm to be sued for discrimination. In US companies, diversity is not only desired, but it is increasingly unacceptable to have a non-diverse workplace. Therefore, it’s perfectly understandable that the service provider firms, which have historically organizations which heavily utilize Indian talent, are easy targets for lawsuits claiming discrimination.

Litigants may not need to show specific examples of discrimination – only the results from a pattern of hiring or promotion. It really doesn’t even matter whether the lack of diversity was intentional or not. It’s just a fact of today’s US workplace that non-diverse hiring practices (for employees, middle managers and leadership) are now problematic. And the scrutiny that the service provider firms face is growing because of the difficult political environment.

It is quite understandable how services firms came to be in this position, and that they got into this situation honestly. They are great firms that were built with integrity with large work forces in India. As they grew, it was natural for the service firms to use H-1B and L1 visas to bring their own employees to the United States for the following reasons:

  • They trust these employees
  • The employees do high-quality work
  • The employees have a strong cultural affinity and are thus comfortable in an Indian environment transported to the US operations
  • They have the connections back into the talent factories in India and elsewhere
  • It costs less than having to hire in the US.

The natural advantages combined with the economic advantages of importing Indian labor and hiring H-1B workers, resulted in a demographic dominated by Indian labor – but not necessarily a result of discrimination. However, this is a difficult argument to make when the statistics clearly show a skewed labor force.

Lawsuit Results

Clearly, the service firms are at risk and, in all likelihood, will need to address these issues.  The demands both ethnic and gender diversity in workplaces. Given the US political environment that now exists, the third-party service industry will likely face increasing demands to change the status quo.

They face a difficult set of choices, since they don’t want to discriminate against their current work force, yet they may need to take significant action to address the appearance of favoritism as well as change parts of their corporate culture, employment policies and benefits structure to bring them more in line with US expectations. If the service firms don’t address these issues, they run an increasing risk that a growing number of companies won’t do business with them.

But it will be difficult and expensive to address the issues. It likely will cause rising costs in the US. The cost to remedy the demographic makeup of the work force is quite high and likely will adversely affect competitiveness and margins. Addressing the issues is also likely to create additional morale and legal issues. They can’t fire people to bring about a more diverse workplace. They must take the interests of existing employees in mind while they move to diversity. Moreover, addressing these changes will take time.

And then there’s the reputation factor. At this time of great sensitivity to discrimination and jobs moving offshore, service provider firms face the prospect of increasing pressure to address these issues. But while doing so, they are still open to lawsuits, and these lawsuits would be expensive to litigate or settle. They can afford the litigation and possible judgments and settlements, however high the costs are. But they can’t afford damage to their reputations, brand and public image.

TCS Faces US Jury over Sacking of American Staff | In the News

After Infosys, TCS is now facing racial discrimination charges in the US, its largest customer market. A few American employees, who have lost their jobs, have raised the allegations and TCS will face trial in California starting Monday, reported Bloomberg. The trial begins amid tension and uncertainty over H1-B visa. Many Indian companies have exported manpower, a practice that has not found favour with US president Donald Trump.

Peter Bendor-Samuel CEO and founder of California-based Everest Group, told  FC:  “TCS along with the other Indian firms are facing a growing scrutiny under a difficult political environment in the US.  We have seen similar lawsuits against Infosys and expect to see more against the other firms.”

Read more in Deccan Chronicle

Three Truths about H-1B Visa Reform | Sherpas in Blue Shirts

The news about pending immigration and H-1B visa reform in recent weeks plowed anxiety into companies and workers in both the US and India. I’ve closely followed the visa reform movement and blogged about how it was evolving many times since 2013. The buzz in recent weeks was so hot it carried a “the sky is falling” flavor because of rumors of ending the policy of extending visas for workers already in the US. But the US Customs and Immigration Services agency announced this week the policy is not currently changing. So, what does this really mean? I believe there are three truths we should not overlook.

Truth #1: It’s not over til it’s over

As the Yankees’ baseball legendary Yogi Berra pointed out about apparent wins, “It ain’t over til it’s over.” There is still real momentum to reform the H-1B visa program. President Trump wants change, and now, for the first time, there is bipartisan support for meaningful legislation being enacted. Both parties agree on a narrow scope of reform to the visa program without the larger contentious issues of immigration reform. In addition, mid-term elections loom, and both Republicans and Democrats want to show accomplishment and want to demonstrate they can work together. Although visa reform had a low-odds chance of enactment over the past few years, the probability now has high odds.

Truth #2: India stands to benefit from the legislation

Despite the intense rhetoric, H-1B visa reform is not draconian. There will be winners and losers; but in many respects, India stands to benefit from the legislation when it’s enacted.

For example, many workers participating in the H-1B program will receive higher wages and will do more interesting work. The individuals that want to work in America through H-1B visas may find themselves more likely to work for an Amazon, Microsoft, Facebook or Netflix type of company.

From an Indian diaspora perspective, India has the deepest talent pool and the most qualified group of workers wishing to emigrate to the US. India has the largest and deepest talent pool and the most qualified workers. India’s talent pool is highly valuable to the US economy, especially high-tech firms; and the pressure to retain this talent in the US won’t go away.

Truth #3: Indian service providers must address the issues

As I said already, there will be winners and losers when visa reform legislation is eventually enacted. The workers will win, assuming the green card processing backlog clears up by that time. But the Indian service provider firms will clearly lose their ability to use the H-1B visa system to their advantage. That’s not to say that it would preclude them from utilizing H-1B visas, but it would increase their costs. They would have to either pay more for the H-1B workers or pay more when they hire domestic talent.

That said, it’s important to recognize that India’s service providers have many levers to address the issue. Most, if not all, service providers have an adjustment process well underway. Wipro, for example, is leading the way and has been working for years to address this issue.

The legislation, when enacted, will cause downward pressure on service providers’ margins. This alone will not challenge their relative profitability but will at least create a headwind for their absolute profitability. Having said that, their margin gap will narrow only modestly. The truth is, the Indian service providers have envious industry-leading margins and will continue to be the most profitable service providers in the world even after they make the necessary adjustments to H-1B visa reform.

Marginal Margin Impact from H1-B Visa Reforms? Maybe Not | Sherpas in Blue Shirts

On 25 April 2017, U.S. President Donald Trump moved one step closer to instituting new regulations for granting H-1B visas. At the same time, many IT service providers – especially those of Indian-heritage –moved one step closer to realizing their worst fears! The threat of visa reforms became real when President Trump ordered an inter-departmental review of the H-1B visa program, which would ensure formulation of regulations for hiring only the most skilled or the most highly-paid professionals and “would never replace American jobs.”

While it is universally acknowledged that a stricter visa regime will negatively impact most service providers’ onshore margins, particularly the offshore-centric providers that follow the “landed” resource model (i.e., a delivery model that hires resources from offshore centers to work in the U.S.,) it is important to examine the true nature of this impact. The exhibit below indicates the possible impact on onshore margins under various visa reform scenarios.

Scenario-based H1-B visa reform impact assessment on onshore (U.S.) margins

H1-B Visa Reform impacts onshore and offshore margins

Even in a situation where the visa reforms do not translate into full-fledged regulation (the most ideal scenario for Indian-heritage service providers) we expect far greater scrutiny of H1-B visa applications, leading to fewer visa grants. Even in this scenario, we expect more onshore hiring by IT service providers to meet their talent requirements, leading to reduction of service provider margins by 2-4 percentage points.

The probability of the above happening has become more dubious, given recent developments, and it is highly likely that visas will be granted based on either skills/merit or minimum wage requirements of US$130,000. In either case, service providers will need to hire a much higher share of local resources. This further complicates the situation for Indian-heritage providers, as they have a smaller foothold in the U.S. talent market than do the global providers. Whether Indian-heritage or global, hiring landed resources at some/all levels of the delivery pyramid at the minimum salary levels of US$130,000 could drop service provider margins by as much as 14-16 percentage points, resulting in negative returns on onshore deals, at least in the short-term.

While none of the scenarios paint a rosy picture for service providers, the impending visa reforms may act as a catalyst for them to develop more automation solutions and front-end technology products and restructure their talent hiring and value proposition. Interestingly, while onshore resources will increase in U.S.-based contracts, the overall portfolio-level offshore ratios may also marginally increase with providers pushing the offshoring lever to protect their overall margins.

Everest Group has simulated the potential impact on onshore margins using key input variables around existing cost structures, rate cards, staffing pyramid, and onshore-offshore resource mix. Please see our viewpoint on the above topic: “Impact of Changes to H-1B Visa Program on Service Provider Margins” for more details.

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